2017 Annual Forecast: South Asia

As in so many other regions, nationalism is on the rise in South Asia, and leaders there will use it to advance their political agendas.

As in so many other regions, nationalism is on the rise in South Asia, and leaders there will use it to advance their political agendas. This will be particularly pronounced as India and Pakistan prepare for elections. And because this is India and Pakistan, nationalist rhetoric in one country will often demonize the other.

But they have very different domestic agendas. India will try to add to the modest progress it has made toward reform, particularly tax reform. And it will do so as its economic growth slows, thanks in part to recent demonetization schemes.

For its part, Pakistan's military will use the threat of India as an excuse to maintain the status quo in its civil-military balance of power. It will also ensure that Pakistan's ties with Afghanistan remain weak as instability in that country undermines progress on transnational energy projects, including the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline.

Honing an Image in India

2017 will be a crucible for Prime Minister Narendra Modi's Bharatiya Janata Party (BJP). In 2014, the BJP became the first party in 30 years to win a majority in the lower house of parliament, at once dispelling, if only temporarily, the tradition of coalition government that has long defined Indian politics. But even with such a mandate, honoring promises of reform in a legislature as fractured and convoluted as India's is difficult, prone to slow, uneven progress.

Now, the great challenge facing the BJP is to continue making progress on its promises and to streamline the country's onerous land, labor and tax regulations, all in support of unleashing the labor-intensive economic growth India needs in order to absorb the 12 million people who enter the job market every year. This is no easy task. The sheer scale of reform in a stratified, billion-citizen democracy such as India is so immense that its implementation is measured not in years but in generations. And so Modi has taken the long view, having used his first five-year term to lay the groundwork for a second term in 2019.

To that end, Modi means to win state-level elections to bolster his party's numbers in the upper house of parliament; doing so, of course, would make it easier to pass legislation. The elections in Uttar Pradesh, India's most populous and electorally most important state, are particularly important. A victory there would substantially bolster the BJP's numbers in the upper house and go a long way toward securing a presidential re-election in 2019.

The outcome of the election is less important than the strategy the BJP employed to win it. This is because the three remaining bills of the Goods and Services Tax (GST) failed to pass during the winter session of parliament. The opposition capitalized on the ill will generated by Modi's demonetization campaign against black money (the measure entailed the withdrawal of 500 and 1,000 rupee notes from circulation). Modi expected this, of course, but he went through with the measure anyway as part of a bigger political calculation: He wanted to hone his image as a pro-poor, anti-corruption candidate ahead of the Uttar Pradesh elections.

Failing to pass all of the bills in 2016 means that the BJP will have to push back its April 1 deadline for implementing them and focus on passing the remaining ones in 2017. Other reforms will therefore have to be put on hold. Moreover, given that demonetization is a necessarily disruptive process for a cash-based, consumption-driven economy such as India's, growth will slow in 2017. In turn, this will lower inflation rates and compel the Reserve Bank of India to loosen monetary policy.

The rise of the BJP also gave rise to nationalism, a trend that will continue throughout 2017. Its renaissance will force the BJP to take a hard line against Pakistan, but this, too, is at least partly a political calculation: Opposition to Pakistan cuts across party lines, so admonishing Islamabad will make it easier for the BJP to keep an otherwise fractious voting base intact.

India and Pakistan: A Smaller Risk of Escalation

August 2017 will mark the 70th anniversary of India and Pakistan's independence, so nationalism in each country will be running high. This uptick in nationalism, not to mention the perennial cross-border militant attacks into Kashmir, will have governments on both sides of the border on high alert. And even though the newest evolution of India's military doctrine, which is more tactical and precise than its forebear, will deter attacks and minimize the risk of escalation, it will not remove the possibility entirely.

Pakistani and Indian military personnel perform a flag ceremony a border post in 2016. (Narinder Nanu/AFP/Getty Images)

It is in this context that the India-Pakistan rivalry will take shape in 2017. The election season in India will promote anti-Pakistan rhetoric, which will only encourage Pakistan to continue to respond to intensifying cross-border shelling by Indian troops. (Incidentally, tensions have escalated since 2014, the year Modi came to power and the year NATO withdrew most of its troops from Afghanistan, enabling Pakistan to turn its attention from its border with Afghanistan to its border with India.)

But Pakistan has elections too, slated for 2018, and this year Prime Minister Nawaz Sharif will begin his own campaign for an unprecedented fourth term. Criticism from the opposition that he is too weak on India will compel him to take a much tougher stance.

Militancy as a Means to an End

In 2017, South Asian militancy will be used as a means to political ends. India will continue to work with Afghanistan to construct the Chabahar Port in Iran, much to the chagrin of Pakistan, which believes New Delhi is also providing aid to secessionists in Balochistan. The aid, Pakistan suspects, is itself a way to sabotage the China-Pakistan-Economic-Corridor, a central tenet of Sharif's campaign promise to reduce the country's natural gas shortages. Accordingly, Islamabad will resist calls to arrest members of the Taliban who live in Balochistan, using them as levers to force Washington and Kabul to include Pakistan again in negotiations with the Taliban.

Pakistan's Government Remains Steadfast

Underlying the dynamics of the region is how much power Pakistan's military, and particularly the army, has in the country's politics. It has ruled for nearly half of the country's 69-year history. It is too early to say how Gen. Qamar Bajwa, the country's recently appointed army chief, will alter the civil-military balance of power. But it is clear that the threat from India — real or perceived — will push the army to maintain the status quo, even in light of two milestones recently passed on the way to civilian rule: the completion of a democratically elected president's five-year term in 2013, and the abdication of power by an army chief after one three-year term in 2015.

Either way, the Pakistani government will remain steadfast in its role in the Afghan conflict — which is to say, Islamabad will obstruct talks, if it allows them to emerge at all, if it feels as though it is being sidelined by Afghanistan or by the United States. But what also stands in the way of resolution are the divisions within the Taliban — manifested most notably this year by its Doha faction, which began vocalizing calls for the Taliban to transition from an insurgency into a viable political movement – divisions that will become all the more apparent in 2017. Instability will hamper progress on transnational energy projects such as the Turkmenistan-Afghanistan-Pakistan-India pipeline, which highlight the country's role as an energy bridge linking energy abundant Central Asia with energy deficient South Asia.